Goldman Sachs consults Russia on growth

Russia needs better governance to see a 2-percent GDP growth, Goldman Sachs Group analysts said after being hired by the Russian government to attract more investors to the country.

Russian experts disagree with the stance as they see no direct correlation between reforms of state regulation and economic growth.

The bank pledges more direct investment, and a surge in economic growth and profits of Russian companies if the country improves its state regulation as well as business environment. Goldman Sachs analysts claim that by reforming its government institutions, Russia will boost its growth from 3 to 5.5%.

"It depends on which institutions are improved and how. Some of these institutions may even be halting the growth. So I view the proposal as a speculation. Economic stimuli are provided not by state institutions but by oil and energy prices so, in this case, the proposed reforms would hardly influence the raw materials sector of Russia’s economy."

One more thing is international experience which shows that better governance rarely leads to higher growth. Usually such reforms have no economic effect at all, says Yaroslav Kabakov.

"For example, Georgia improved its state institutions but its economy didn’t move an inch."

Experts find a 5.5% growth of Russia’s GDP highly probable but they see the impetus in a better business environment.

President Vladimir Putin ordered the government to improve Russia’s standing in the World Bank’s Doing Business rating to 20th place by 2018. Goldman Sachs says this will add only some 0.2% to Russia’s GDP but independent experts expect more, says Viktor Chetverikov from the National Rating Agency.

"Better business environment has a great impact on GDP and if Russia makes it to any prominent rating it will be a sign that its economy and investment appeal are on the rise and investors favor the country. This will attract more investments."

Russia was ranked 112 in the latest Doing Business rating but the government expects to see it in the top 20 and experts, including those from Goldman Sachs, find this goal quite realistic.

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